Our 2022 forecasts remain below the prevailing futures prices, which are all above USD 8/mmbtu. Our March 2023 forecast is close to market prices.
Despite soaring natural gas prices, which normally would trigger some demand destruction, we expect inventories to reach about 3.4tcf by the end of October, which is considerably below the 5-year average of 3.64tcf. Labor and material shortages have so far prevented stronger supply growth in the shale basins of Haynesville and Permian. Pipeline bottlenecks in the Appalachian basin in the northeast are limiting supply growth. We thought at current levels, utilities would switch away from natural gas to coal. But this has not happened in the amount we had expected due to a lack of coal supply. To see switching from gas to oil, we think prices would need to rise above USD 10/mmbtu.
However, we expect some of the current tightness to ease. Such high prices should weigh on industrial demand. Associated gas production, which is natural gas produced from oil wells, is likely to increase; in 2020, associated gas accounted for about 14% of total US natural gas production. And nuclear power generation that was switched off for maintenance is set to return.
Main contributors – Giovanni Staunovo, Dominic Schnider, Wayne Gordon
Content is a product of the Chief Investment Office (CIO).
Read original report – US natural gas: Tightness continues, 5 May 2022.
